Russia Seeks $683,333 a Day Interest in Ukraine Bond Lawsuit

  • Moscow is suing Ukraine in London over defaulted bonds
  • Russia refused to take part in Ukraine resturcturing in 2015

Russia is ratcheting up the pressure against Ukraine over a $3 billion defaulted bond, asking its eastern-European neighbor to pay as much $683,333 a day in interest until the dispute is settled by a London judge.

The government in Moscow is seeking to increase the interest it charges Ukraine to 8 percent from 5 percent on the securities, according to court documents in the lawsuit filed Feb. 17 and released this week. The interest, backdated to Dec. 20, would set Ukraine back almost $65.6 million as of Thursday.

Russia refused to take part in the $15 billion debt restructuring that Ukraine reached with foreign bondholders including Franklin Templeton last year. War with pro-Russian rebels has pushed Ukraine to the brink of insolvency, forcing it to seek an international bailout. The London case is one of several dueling legal actions between the countries throughout Europe with claims totaling about $100 billion.

Writedown

The rate Russia is demanding exceeds the 7.75 percent coupon Ukraine offered in its debt restructuring, which also included a 20 percent writedown of principal and maturity extensions. Russia’s lawyers suggest returning to the original 5 percent rate, equivalent to $427,083 a day, if the London judge decides 8 percent interest is too high, according to court documents.

Russia’s lawyers are also demanding $75 million in missed interest payments up to Dec. 20.

Russia has to pursue the lawsuit in the U.K. because the bond was structured under English law. President Vladimir Putin bought the debt in December 2013 to bail out his former Ukrainian counterpart and ally, Viktor Yanukovych, just months before he was toppled and Russia annexed Crimea. The notes were priced to yield 5 percent, less than half the rate on Ukrainian notes at the time.

“Ukraine has already indicated and re-affirms its intention vigorously to defend the entirety of the claim relating to the Russian Eurobonds," Alex Gerbi, a lawyer representing the country, said in an e-mail. "It will be filing its defense in due course.”

Hearings in the lawsuit may begin in the spring, Russian Deputy Finance Minister Sergei Storchak said Thursday, according to the Interfax news agency.

The case is The Law Debenture Trust Corporation v. Ukraine in the U.K. High Court of Justice, Queen’s Bench Division case no FL-2016-000002.

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